05 Mar 2019 --- Dutch cheese production has recorded exponential growth since 2012, outpacing the limited consumption growth in northwestern Europe, according to a new Rabobank report. This has diluted margins and weakened the position of cheese producers in the value chain. However, Dutch cheese production is still forecast to increase to almost 930,000 metric tons by 2022, based on increased liquid milk imports and investments in additional processing capacity.

“As consumer preferences change, there’s an increasing demand for convenience and personalized nutrition, including online sales, local products, and specialties,” according to Richard Scheper, a Dairy Analyst at Rabobank. “Focusing on the added value along the value chain, and these new preferences still provide opportunities for cheese producers to secure healthier margins.”

Developing markets provide better opportunities for volume growth, while the premiumization of (specialty) hard cheese segments in developed regions provides opportunities for value growth. However, opportunities in overseas markets and distribution channels are not limitless and often require a customized marketing approach, Rabobank notes.

In developed countries, the opportunities for volume growth, however, are more restricted due to the often higher base for cheese consumption and lower population growth. For some countries, such as the US, price-competitive domestic production has to be taken into account for certain cheese varieties and distribution channels. However, the demand for hard “specialty” cheeses via specialized cheese outlets still provides opportunities for value growth in developed markets, notes the report.

Although the Dutch cheese industry is currently based on trade rather than on domestic consumption, almost 50 percent of the additional cheese production since 2012 was absorbed by exports to Germany and Belgium, says the Rabobank report. About 75 percent of Dutch cheese is consumed within 500 km of the Dutch border, indicating the importance of margin growth in northwestern Europe.

According to Rabobank, “consumer preferences are rapidly changing and there is increased demand for convenience and personalized nutrition, including online sales, local products and specialties.” Focusing on the added value along the value chain, along with these new preferences, still provides opportunities for cheese producers to secure healthier margins, notes the Dutch multinational banking and financial services company.

Outside of the EU, expanded trade agreements such as the Economic Partnership Agreement, implemented on February 1, 2019, with Japan – the largest export destination for Dutch cheese outside of Europe – are expected to improve the export position in many regions.

Regaining margin growthFrom 2012, margins on cheese have structurally declined for most cheese producers in the Netherlands. Nonetheless, cheese production – predominantly (semi-)hard cheeses such as Gouda – increased in most years, to 879,000 metric tons (+14.9 percent) in 2018. This outpaced the limited consumption growth in northwestern Europe (the Netherlands, Germany, and Belgium) – one of the largest markets for (semi-) hard cheeses and the primary consumer market for Dutch cheese – resulting in diminishing margins.

The growth in cheese production was predominantly driven by increased milk supply and higher returns from cheese and whey rather than from butter and milk powders.

However, there are still opportunities for Dutch dairy companies to increase their milk supply. The EU allows free trade of milk and dairy products between member states, enhancing cross-border trade. Moreover, from a cost (logistics and farmgate prices) and milk quality perspective, the milk supply field doesn’t stop at the border for a large proportion of Dutch cheese processors.

Dutch cheese consumption is expected to remain relatively stable, at around 370,000 metric tons to 380,000 metric tons annually, between 2018 and 2022. The exportable surplus will increase to almost 925,000 metric tons by 2022, based on additional cheese production and stable cheese imports. This is an increase of approximately 145,000 metric tons, or nearly 18.5 percent compared to 2014. While the Dutch cheese industry is built on its historical domestic roots, its future depends on a growing export market.

Moving forwardMilk will continue to flow into cheese vats due to the favorable combined value of cheese and whey, along with the expansion of processing capacity. The forecast cheese production growth in the Netherlands and other countries in northwestern Europe is too significant to be absorbed by northwestern European consumers alone. This will increase the region’s dependence on exports and contracts with large retailers. Therefore, cheese producers have several options for regaining margin growth and for strengthening their position in the value chain, focusing on the added value along the value chain and changing consumer preferences and expanding overseas export markets.

Shifting demand fuels pockets for “value” growthDemographic changes are increasingly challenging the traditional ways in which cheese is distributed and consumed in northwestern Europe, fueling pockets for value growth. A significant difference is a shift in demand from younger generations, such as millennials and Generation Z. A growing proportion of the population in northwestern Europe, with relatively high disposable incomes, lives in smaller households in urban areas, spending less time preparing and eating food at home. As a result, they demand more convenience and personalized nutrition. Moreover, they have a different perception, or awareness, about food when it comes to health, its nutritious value and how it is produced, the Rabobank report concludes.

05 Mar 2019 --- Dutch cheese production has recorded exponential growth since 2012, outpacing the limited consumption growth in northwestern Europe, according to a new Rabobank report. This has diluted margins and weakened the position of cheese producers in the value chain. However, Dutch cheese production is still forecast to increase to almost 930,000 metric tons by 2022, based on increased liquid milk imports and investments in additional processing capacity.